AgDM
Special Feature newsletter article, December 1997
Options for backgrounded calves
by
Tim Eggers, Extension Farm Management Specialist, 712.542.5171, teggers@iastate.edu
Calves being backgrounded
have a certain fate. They will be finished somewhere and somehow. You should
keep that in mind when you look at your options when backgrounding is completed.
However, you should be proactive and examine those options now -- evaluate
them for appropriate actions.
There are many reasons
for backgrounding cattle. Perhaps you do it because you have always done
it. Some do if for income tax management reasons or to manage cash flow.
Yet others do it as part of a well defined business management plan that fits
their abilities and the resources of the operation. Regardless of the reason,
you should evaluate the opportunities presented by the market each year.
Use the example in Table 1 to analyze your options. Enter your own figures.
Options for calves currently in a backgrounding program include:
Table 1. Expected Returns
to Finishing Backgrounded Cattle (per head)
|
|
Steer
|
Heifer
|
|
Purchase date
|
Jan.
1
|
Jan.
1
|
|
Purchase wt. (lbs)
|
750
|
700
|
|
Days on feed
|
156
|
136
|
|
Expected sale date
|
June
6
|
May
17
|
|
Finished wt. (lbs)
|
1,250
|
1,050
|
|
|
|
|
|
Feeder Cost
|
|
|
|
Feeder price
|
$80
|
$77
|
|
Feeder cost
|
$600
|
$539
|
|
|
|
|
|
Feed Costs
|
|
|
|
Corn (bu.)
|
63
|
47
|
|
@ $2.40
|
$151.20
|
$112.80
|
|
Alfalfa-brome (ton)
|
.35
|
.25
|
|
@ $100
|
$35.00
|
$25.00
|
|
Supplement (lbs)
|
117
|
102
|
|
@ $.08)
|
$9.36
|
$8.16
|
|
Total feed costs
|
$195.56
|
$145.96
|
|
|
|
|
|
Other Costs
|
|
|
|
Vet., Med. &
Oper.
|
$13.80
|
$12.75
|
|
Interest / feeder
(10%)
|
25.64
|
20.08
|
|
feed & oper.
(10%)
|
4.47
|
2.96
|
|
Labor ($7.00)
|
14.00
|
14.00
|
|
Death loss (.75%)
|
4.50
|
4.04
|
|
Trans. & marketing
|
10.80
|
9.80
|
|
Total other costs
|
$73.32
|
$60.13
|
|
|
|
|
|
Total variable
costs
|
$868.78
|
$745.09
|
|
|
|
|
|
Fixed facility costs
|
14.20
|
12.30
|
|
Total all costs
|
$882.98
|
$757.39
|
|
|
|
|
|
Selling price
per cwt. to
|
|
|
|
cover var. costs
|
$69.50
|
70.96
|
|
cover all costs
|
70.64
|
72.13
|
|
|
|
|
|
Returns
|
|
|
|
June fut. (mid-Nov.)
|
$70.35
|
$70.35
|
|
Est. Basis *
|
.13
|
1.31
|
|
Hedge price
|
$70.48
|
$71.66
|
|
|
|
|
|
Returns per head
|
|
|
|
Return / var. costs
|
12.25
|
7.35
|
|
Return / all costs
|
-2.00
|
-4.94
|
* Decision File Live
Cattle Basis
Corn
price
Corn price, which makes
up 15 percent of the cost for heifers and 17 percent for steers, is expected
to have at least the normal 30 cent rise from harvest levels. Currently (Nov.
20) cash corn prices range from $2.40 in Northwest Iowa to $2.69 in Southeast
Iowa. The expected returns to finishing backgrounded cattle (Table 1) start
to go negative at around $2.58. We are already above that price level in
parts of Iowa. This indicates that, if finishing backgrounded cattle is preferred,
corn needs should be locked in at a favorable price.
Cattle
price
Cattle prices have some
upside potential. If protecting current profit levels is a concern, then
both needs could be met by purchasing put options or by using synhetic puts.
Two Ag Decision Maker Decision Files can help you make these decisions
-- Forward Pricing of Livestock and Live
Cattle Basis.
Conclusion
Cattle currently being
backgrounded will be finished somewhere. It is up to you to decide where
and how. Opportunities exist with retained ownership -- either in your feedlot
or in a custom feedlot. However, these alternatives need to be examined closely
to identify the best option.
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